Currency manager

JPEREZAR · September 16, 2020, 11:09pm

Hi all!!

If I were in this scenario, which risk free rate I should obtain… I am european investor that invest in asset in US, I hedge the FX and the asset… so my return would be the US risk free rate?

Thanks!!

S2000magician · September 17, 2020, 12:56am

Your risk-free rate (probably EUR, but possibly CHF; Switzerland’s still in Europe, I believe).

JPEREZAR · September 17, 2020, 2:23am

Thanks!! Could you explain the Logic behind that? I thought the return would be US risk free because the asset was there

S2000magician · September 17, 2020, 2:35am

Arbitrage.

(Recall how the forward exchange rate is calculated from Level II.)